Test Series: October, 2019

MOCK TEST PAPER – 1

INTERMEDIATE (IPC): GROUP – I
PAPER – 2 : BUSINESS LAWS, ETHICS AND COMMUNICATION
SUGGESTED ANSWERS/HINTS

DIVISION A

1 2 3 4 5 6 7 8 9 10
(d) (d) (c) (a) (b) (d) (c) (a) (c) (a)
11 12 13 14 15 16 17 18 19 20
(a) (c) (b) (b) (b) (b) (c) (b) (c) (b)
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(b)
DIVISION B
1. (a) The problem as asked in the question is governed by Section 58 of the Companies Act, 2013
dealing with the refusal to register transfer and appeal against refusal.
In the present case the company has committed the wrongful act of not sending the notice of refusal
of registering the transfer of shares.
Under section 58 (4), if a public company without sufficient cause refuses to register the transfer
of securities within a period of thirty days from the date on which the instrument of transfer is
delivered to the company, the transferee may, within a period of sixty days of such refusal or where
no intimation has been received from the company, within ninety days of the delivery of the
instrument of transfer, appeal to the Tribunal.
Section 58 (5) further provides that the Tribunal, while dealing with an appeal made under sub -
section (4), may, after hearing the parties, either dismiss the appeal, or by order—
(a) direct that the transfer or transmission shall be registered by the company and the company
shall comply with such order within a period of ten days of the receipt of the order; or
(b) direct rectification of the register and also direct the company to pay damages, if any,
sustained by any party aggrieved.
In the present case Ms. Receiver can make an appeal before the tribunal and claim damages.
(b) Businesses as trustees: Mahatma Gandhi, the father of the nation, had aptly said that trusteeship
provides a means for transforming the present capitalist order of society into an egalitarian one. A
business man has to act only as a trustee of the society for whatever he has gained from the
society. Everything finally belongs to the society. Society bestows upon business the authority to
own and use land and natural resources. In return the society has the right to expect that productive
organizations will enhance the general interests of consumers, employees and community.
Business ethics is required to implement the laws of land, customs, expectations of community,
principles of morality, etc. The products and services of an organization affect its employees, the
community and society as a whole. Business ethics also subserve the management discipline.
Business houses may also use their financial and public influence to address social problems like
poverty, crime, equal rights, environmental problems, public health and education. Society at large
has also come to realize that since businessmen are making profits by using the country’s
resources, they owe it to the country to work for its development. Sound workplace ethics ensure
that a company’s employees are highly motivated and identify themselves with their employer.
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 Following ethical business practices safeguard a company from getting entangled with law
enforcement agencies. A reputation for highly ethical behaviour also ensures increased sales and
customer loyalty. Certain eco-friendly practices also reduce operation costs. Thus, society derives
benefits as well as business prospers when businesses are ethically driven.
(c) The grapevine becomes active when the following factors are present:
(a) Feeling of uncertainty or lack of sense of direction when the organisation is passing through
a difficult period.
(b) Feeling of inadequacy or lack of self confidence on the part of the employee, leading to the
formation of groups.
(c) Formation of a coterie or favoured group by the manager, giving other employees a feeling of
insecurity or isolation. People operating in such circumstances will be filled with all sorts of
ideas and will share them with like minded companions, at whatever level they may be. Mostly
they find them at their own level, but other levels are not barred. This type of communication
is being seriously studied by psychologists and management experts.
2. (a) Computation of Salary / Wages: According to Section 2(21) of the Payment of Bonus Act, 1965
salary and wages means all remuneration other than remuneration in respect of overtime work,
capable of being expressed in terms of money, which would if the terms of employment, express
or implied, were fulfilled, be payable to an employee in respect of his employment, or of work done
in such employment and includes dearness allowance, i.e. all cash payment by whatever name
called, paid to an employee on account of a rise in the cost of living. But the term excludes:
(i) Any other allowance which the employee is for the time being entitled to;
(ii) The value of any house accommodation or of supply of light, water, medical attendance or
other amenities of any service or of any concessional supply of food grains or other articles;
(iii) Any traveling concession;
(iv) Any bonus including incentive, production or attendance bonus;
(v) Any contribution paid or payable by the employer to any pension fund or for benefit of the
employee under any law for the time being in force.
(vi) Any retrenchment compensation or any gratuity or other retirement benefit payable to the
employee or any ex-gratia payment made to him; and
(vii) Any commission payable to the employee.
It has been clarified in the explanation to the section that where an employee is given, in lieu of
the whole or part of the salary or wage payable to him, free food allowance or free food by his
employer, such food allowance or the value of such food shall be deemed to form part of the salary
or wage for such employee.
In view of the provisions of Section 2(21) explained above, the payment of dearness allowance and
value of free food by the employer forms part of salary of Manish while remaining three payments
i.e. payment for overtime, commission on sales and employer’s contribution towards pension funds
shall not form part of his salary.
(b) Correct: The success of the business depends very much on fairness and honesty in the business.
Fairness and honesty are at the heart of the business ethics and relate to the general values of
decision makers. At a minimum, business professionals and persons are expected to follows all
applicable laws and regulation. Even then, they are expected not to harm customers, employees,
clients or competitors knowingly through deception, misrepresentation, coercion or discrimination.
One aspect of fairness and honesty is related to disclosure of potential harm caused by product
use. For example, Mitsubishi Motors, a Japanese automaker, faced criminal charges and negative
publicity after executives admitted that the company had systematically covered up customer
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 complaints about tens of thousands of defective automobiles over a 20 year period in order to avoid
expensive and embarrassing product recalls.
Another aspect of fairness relates to competition. Although numerous laws have been passed to
foster competition and make monopolistic practices illegal, companies sometimes gain control over
markets by using questionable practices that harm competition.
Rivals of Microsoft, for example, accused the software giant of using unfair and monopolistic
practices to maintain market dominance with its Internet Explorer browser.
These aforesaid examples show that fairness and honesty pay in the long run; they secure the
stability of the business and overall reputation in the business world. Therefore, we may say that
fairness and honesty are the pillars of success in the business.
(c) Functions of Interpersonal Communication: Interpersonal communication is important bec ause
of the following functions it achieves:
Gaining Information: One reason, we engage in interpersonal communication, is to gain
knowledge about another individual. We attempt to gain information about others so that we can
interact with them more effectively.
Building Understanding: Interpersonal communication helps us to understand better what
someone says in a given context. Words can mean very different things depending on how they
are said or in what context. Content Messages refer to the surface level meaning of a message.
Relationship Messages refer to how a message is said. The two are sent simultaneously, but
each affects the meaning assigned to the communication and helps us understand each other
better.
Establishing Identity: We also engage in interpersonal communication to establish an identity
based on our relationships and the image we present to others.
Interpersonal Needs: We also engage in interpersonal communication to express interpersonal
needs. William Schutz has identified three such needs: inclusion, control, and affection.
• Inclusion is the need to establish identity with others.
• Control is the need to exercise leadership and prove one's abilities.
• Affection is the need to develop relationships with people. Groups are an excellent way to
make friends and establish relationships.
3. (a) As per Section 10 of the Employees’ Provident Funds and Miscellaneous Provisions Act,1952, the
amount standing to the credit of any member in the fund or of any exempted employee in a
provident fund shall not in any way be capable of being assigned or charged and shall not be liable
to attachment under any decree or order of any court in respect of any debt or liability incurred by
the member or exempted employee, and neither the official assignee appointed under the
Presidency Town Insolvency Act,1909, nor any receiver appointed under the Provincial Insolvenc y
Act,1920, shall be entitled to or have any claim on, any such amount. This protection also applies
to provident fund, pension and insurance amount receivable by employee under the scheme.
The amount standing to the credit of the person at the time of his death is payable to his nominees
under the scheme or the rules under this Act.
Further, the amount shall be free from any debt or other liability incurred by the deceased or the
nominee before the death of the member or of the exempted employee and shall also not be liable
to attachment under any decree or order of any Court.
(b) The Companies Act, 2013 by virtue of provisions as contained in Section 39 (1) and (2) regulates
and restricts the minimum subscription and the application money payable in a public issue of
shares as under:

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 Minimum subscription [Section 39 (1)]
No Allotment shall be made of any securities of a company offered to the public for subscription;
unless; -
(i) the amount stated in the prospectus as the minimum amount has been subscribed; and
(ii) the sums payable on application for such amount has been paid to and received by the
company-
Application money: Section 39 (2) provides that the amount payable on application on each
security shall not be less than 5% of the nominal amount of such security or such amount as SEBI
may prescribe by making any regulations in this behalf.
Further section 39 (3) provides that if the stated minimum amount is not received by the company
within 30 days of the date of issue of the prospectus or such time as prescribed by SEBI, the
company will be required to refund the application money received within such time and manner
as may be prescribed.
In case of any default under sub-section, the company and its officer who is in default shall be
liable to a penalty, for each default, of one thousand rupees for each day during which such default
continues or one lakh rupees, whichever is less.
Section 40 (3) provides that all moneys received on application from the public for subscription to
the securities shall be kept in a separate bank account maintained with a scheduled bank.
(c) Corporate Governance: Simply stated, 'Governance' means the process of decision making and
the process by which decisions are implemented. The term corporate governance is understood
and defined in various ways. Corporate governance can be defined as the formal system of
accountability and control for ethical and socially responsible organisational decisions and use of
resources and accountability relates to how well the content of workplace decisions is aligned with
the organisations strategic direction. Control involves the proc ess of auditing and improving
organisation decisions and actions. Good corporate governance has the following major
characteristics:
(i) Participatory
(ii) Consensus oriented
(iii) Accountable
(iv) Transparent
(v) Responsive
(vi) Effective and efficient
(vii) Equitable and inclusive and
(viii) Follows the rule of law.
(d) Negotiation: Negotiation occurs when two or more parties either individuals or groups discuss
specific proposals in order to find a mutually acceptable agreement. Whether it is with an employer,
family member or business associate, we all negotiate for things each day like higher salary, letter
service or solving a dispute with a co worker or family member Negotiation is a common way of
settling conflicts in business. When handled skillfully, negotiation can improve the position of one
or even both but when poorly handled; it can leave a problem still unsolved and perhaps worse
than before.
Techniques for Negotiation:
(a) Spiraling agreements: Begin by reaching a minimums agreement even though it is not related
to the objectives and build, hit by hit, on this first agreement.

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 (b) Changing of position: Formulate the proposals in a different way, without changing the final
result.
(c) Gathering information: Ask for information from the other party to clarify their position
(d) Making the cake bigger: Offer alternatives that may be agreeable to the other party, without
changing the terms.
(e) Commitments: Formalize agreements orally and in writing before ending the negotiation.
4. (a) (i) According to Section 11 of the Indian Contract Act, 1872, a person who is of the age of majority
to the law to which he is subject is competent to enter into any contract. A person who has
completed the age of 18 years is a major and otherwise he will be treated as minor. Thus
Rajesh who is a minor is incompetent to contract and any agreement with him is void [Mohori
Bibi Vs Dharmodas Ghose 1903, 30 Cal, 539 (PC)]. Section 68 of the Indian Contract Act,
1872 however, prescribes the liability of a minor for the supply of the things which are the
necessaries of life to him. It says that though minor is not personally liable to pay the price
of necessaries supplied to him or money lent for the purpose, the supplier or lender will be
entitled to claim the money/price of goods or services which are necessaries suited to his
condition of life provided that the minor has a property. The liability of minor is only to the
extent of the minor’s property. This type of contract is called a Quasi-contract and the right
of the supplier/lender is based on the principle of equity. Thus, according to the above
provision, Suresh will be entitled to recover the amount of loan given to Rajesh for payment
of the college fees from the property of the minor.
(ii) As per section 41 of the Indian Contract Act, 1872, when a promisee accepts performance of
the promise from a third person, he cannot afterwards enforce it against the promisor. That
is, performance by a stranger, accepted by the promisee, produces the result of discharging
the promisor, although the latter has neither authorised nor ratified the act of the third party.
Therefore B can sue A only for ` 4000.
(b) The objectives of the Central Consumer Protection Council in India are to promote and protect the
rights of the consumers such as:-
(i) the right to be protected against the marketing of goods and services which are hazardous to
life and property;
(ii) the right to be informed about the quality, quantity, potency, purity, standard and price of
goods/services so as to protect the consumer against unfair trade practices;
(iii) the right to be assured, whichever possible, access to a variety of goods and services at
competitive prices;
(iv) the right to be heard and to be assured that consumers interest will receive due consideration
at appropriate terms;
(v) the right to seek redressal against unfair trade practices;
(vi) the right to consumer education.
(c) The Press Communiqué: The press communiqués are issued when some important government
decisions or announcements are made such as cabinet appointments, conclusion of the foreign
dignitaries’ visits, international agreement, etc. The press communiqué is formal in character. It
carries the name of the ministry or department and the place the date at the bottom left-hand corner
of the release. Generally, the press is expected to reproduce the press communiqué without any
substantial change. No heading or subheading is given on press communiqués.
5. (a) (i) The prescribed particulars of the charge together with the instrument, if any by which the
charge is created or evidenced, or a copy thereof shall be filed with the Registrar within 30
days after the date of the creation of charge [Section 77 (1)]. In this case particulars of charge
have not been filed within the prescribed period of 30 days.
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 However, the Registrar is empowered under proviso to section 77 (1) to extend the period of
30 days by another 300 days on payment of such additional fee as may be prescribed. Taking
advantage of this provision, MNC Limited, should immediately file the particulars of charge
with the Registrar and satisfy the Registrar that it had sufficient cause, for not filing the
particulars of charge within 30 days of creation of charge.
There will be no change in the situation if the charge was created on 12th February, 2019.
(ii) Notice of Charge: According to section 80 of the Companies Act, 2013, where any charge
on any property or assets of a company or any of its undertakings is registered under section
77 of the Companies Act, 2013, any person acquiring such property, assets, undertakings or
part thereof or any share or interest therein shall be deemed to have notice of the charge from
the date of such registration.
Thus, the section clarifies that if any person acquires a property, assets or undertaking for
which a charge is already registered, it would be deemed that he has complete knowledge of
charge from the date the charge is registered.
Thus, the contention of NRT Ltd. is correct.
(b) CORRECT: Inclusion of environmental consideration as a part of corporate strategy improves
corporate performance is a correct statement.
Environmental consideration is a part of corporate strategy, which means incorporating
environmental issues in the process of developing a product, in new investments and in the
organizational set up. A good environmental practice improves corporate performance. In many
industries it has been found that environmental friendly practices have resulted in more saving; for
example the process of recycling the waste. Thus, environmental considerations play a key role in
corporate strategy. Markets of new millennium will be able to create wealth if they respond to the
challenges of sustainable development, as unsustainable products will become obsolete.
(c) A sustainable innovation organisation should have:
(a) Vision and strategy for innovation
(b) Culture supporting innovation
(c) Processes, practices and systems supporting innovation
(d) Top management team leading to innovation.
(e) Effective cross-financial teams.
(f) Empowered employees driving innovation.
(g) Finding the right balance between bureaucracy and chaos.
6. (a) Bearer and Order instruments: An instrument may be made payable: (1) to bearer; or (2) to a
specified person or to his order.
An instrument is said to be payable to bearer when it is expressed to be so payable to its bearer
or when the only or last endorsement on it is an endorsement in blank.
An instrument is payable to order, (1) when it is payable to the order of a specified person or (2)
when it is payable to a specified person or his order or, (3) when it is payable to a specified person
without the addition of the words “or his order” and does not contain words prohibiting transfer or
indicating an intention that it should not be transferable. When an instrument, either originally or
by endorsement, is made payable to the order of a specified person and not to him or his order, it
is payable to him or his order, at his option.
When an instrument is not payable to bearer (i.e., in case of order instrument), the payee must be
indicated with reasonable certainty.

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 (b) Alteration of Capital: Under section 61(1) of the Companies Act, 2013, a limited company having
a share capital may, if authorized by its Articles, alter its Memorandum in its general meeting to:
(i) increase its authorized share capital by such amount as it thinks expedient;
(ii) consolidate and divide all or any of its share capital into shares of a larger amount than its
existing shares
However, no consolidation and division which results in changes in the voting percentage of
shareholders shall take effect unless it is approved by the Tribunal on an application made in
the prescribed manner.
(iii) convert all or any of its paid- up shares into stock and reconvert that stock into fully paid
shares of any denomination
(iv) sub-divide the whole or any part of its shares into shares of smaller amount than is fixed by
the Memorandum
(v) cancel shares which, at the date of the passing of the resolution in that behalf, have not been
taken or agreed to be taken by any person, and diminish the amount of its share capital by
the amount of the shares so cancelled.
Further, under section 64, where a company alters its share capital in any of the above mentioned
ways, the company shall file a notice in the prescribed form with the Registrar within a period of
thirty days of such alteration or increase or redemption, as the case may be, along with an altered
memorandum. The memorandum shall be altered by a special resolution and in compliance with
other relevant provisions of section 13 of the Companies Act, 2013
(c) Creating an ethical environment in company: A sound ethical environment in a company may
be created and corporate scandals may be avoided by adopting the following methods:
(i) Ensuring that employees are aware of their legal and ethical responsibilities.
Some ethical organisations are having policies to train and motivate employees towards ethical
behaviour. To start with, such initiation should be from the top. A number of companies in India
and abroad are being known for their quality and soundness of their ethics programmes.
Companies like Raytheon, Texas Instruments, Wipro are pioneers in establishing ethical
environment among the employees enabling them to take ethical decisions.
(ii) Providing a communication system between the management and employees so that anyone
in the company can report fraud and mismanagement with out the fear of being reprimanded.
In India, Wipro has introduced a helpline comprising of senior members of the company, who
are available for guidance on any moral, legal or ethical issues that an employee of the
company may face.
(iii) Ensuring fair treatment to those who act as whistle blowers:
This is perhaps the most important and sensitive issue. Fair treatment to whistle blowers is a
basic necessity to check fraud. Some acts must be appreciated and that appreciation should
be extended from within the company rather than outside.
(d) Indemnity Bond
Mr. A, S/o Mr. X residing at …………………………, Mumbai do hereby agree to indemnify Primal
Bank for any loss that may occur for seeking re-issue of Deposit Certificates (for a sum of Rs…..)
in duplicate. I further declare that personally I have not received the Deposit Certificates issued by
the bank for which the bank is claiming that it has already been dispatched.
Date………
Place: Mumbai Signature
(Mr. A)
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